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John Malone: Why I’ve changed my tune on packagers

For those of you that follow trade press you may be aware that I have recently accepted my second chairmanship with Positive Lending, a packager of specialist property finance, with my inaugural role being with Front Events, the financial services events company behind Financial Services Expo and led by James Prosser.

The two roles are distinctly different but connected in many ways. Most importantly, they allow me to share insight gathered over 50 years working in financial services. During this monthly article I hope to bring you my unique thoughts, opinions and experiences related to packaging, distribution, specialist property finance and events.

Let’s take a step back in time and look at how distribution has evolved. Going back to the 1990s you will find the dying embers of mortgage desks with various life companies, such as Scot Am, who ran teams of mortgage arrangers to help sell their life products.

In 1996, I saw an opportunity to help these companies streamline their business and, from this idea, the first mortgage club was born. Premier Mortgage Services launched 19 years ago with the famous yellow sticky label. In essence, mortgage club distribution has not changed over the last 20 years; it has only been refined and simplified especially for the DA sector.

You might think it bizarre me joining the board of a packager. While at PMS I was openly critical of packagers and master brokers and choose not to engage with them. This stance did not make me popular. I recall one dinner at the Ritz in 2006 – when I found many of the guests looking at me with a less than popular gaze – and somehow I had been placed on the “packagers” table. Unsurprisingly the atmosphere at the table was fairly hostile so I decided to visit the loo and not return – a hasty retreat was in order.

But times change and, I would argue, packagers and distributors have also changed. Four years ago, Sesame, where I am director of two joint-venture companies, purchased a packager and formed a joint venture with Melton Mowbray to maintain their relationship with GE Money. I had become involved with a packager almost overnight and once looking inside-out I could immediately see the value of this proposition. I could almost hear the cries of “I told you so” from the packaging fraternity.

I believe the recession of 2008 was a pivotal moment for specialist property finance like many other sectors of financial services. In periods of catastrophe opportunity is created. Established specialist lenders were fighting for survival, some would survive but chronically handicapped by legacy issues. The vast majority entered administration.

This apocalypse created an opportunity for new lenders to be created, initially in difficult trading conditions but with heavily reduced competition and incredibly high demand as traditional lenders pulled back.

These lenders – Shawbrook, Aldermore, Precise and InterBay – replaced Commercial First, UCB, Base, Salt, Southern Pacific, First Plus, Tiuta and Bridgingloans and have now created a market share far greater than would have been possible pre-recession.

Similarly with distribution, packaging and master broker services have altered dramatically post-recession. New distribution powerhouses have been formed, created through building strong relationships with specialist lenders relevant today and for future. Networks are dealing with a completely different group of packagers as a result of the above.

A new establishment has been created and, like before 2008, disruption now will be very difficult for potential new entrants.

I know from speaking to management teams at various specialist lenders they highly value the role played by packagers and believe their importance will increase, largely as a result of increased regulation and improvements in technology.

Lenders take the view that residential mortgage intermediaries feel comfortable and prefer to use experts as this tends to result in a better customer experience. Take second charge secured loans as an example. The Mortgage Credit Directive commences on 21 March 2016 and for the first-time all brokers will be compelled by the FCA to, at very least, consider a second charge when providing advice.

Second charge secured loans will be unfamiliar to some and most will not feel comfortable in providing advice as this sector has been restricted to packagers while consumer credit act regulation has been in place. I expect a significant rise in secured loan enquiries and intermediaries will need assistance from experts so that they can determine the most appropriate option for the client.

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